The state agency overseeing Colorado’s historic experiment in marijuana legalization is adding enforcement agents, data analysis and undercover operatives — steps officials say will help them better hold businesses accountable.
A year ago, a state audit criticized what was then the Medical Marijuana Enforcement Division for failing to track marijuana as promised, managing its budget poorly and not clearly defining its role.
More stable funding from application and licensing fees has what is now the Marijuana Enforcement Division on stronger financial footing. The agency has a new director — its third in less than four years — and finally has cleared a backlog of medical marijuana license applications that dated to mid-2010.
Still, some industry officials wonder whether the agency is equipped to deal with challenges that lie ahead, including more new business applications and enforcement of product testing.
By the end of the fiscal year, in June, the division says it expects to employ between 50 and 55 people, up from about 30 now.
The increased manpower will allow for field offices in Colorado Springs, the Grand Junction area and northern Colorado.
The division closed three field offices and laid off staff in 2012 after a moratorium on new business applications forced it to stretch operating expenses budgeted for one year over two.
“They are really going to staff this, put boots on the ground,” said Jeff Gard, a Boulder lawyer who represents marijuana businesses. “If you have been getting away with stuff because the state was underfunded, you may find yourself not only out of business but in jail.”
Consulting jobs: The division’s latest director, Lewis Koski, was hired in January, shortly after the state’s first retail pot shops opened. His predecessor, Laura Harris, is one of several former division officials who have taken consulting jobs in the cannabis industry.
Koski, 42, started his career as an Arvada police officer. He moved to the Department of Revenue in 2004, first working in the Colorado Division of Gaming’s business enforcement group. He jumped to the Medical Marijuana Enforcement Division in 2010, and was chief of investigations before his promotion to director.
Koski said the division is being careful to hire wisely and cautiously purchase new assets. The state audit criticized the division for questionable spending on patio furniture, $1,000 office chairs, BlackBerry phones and a fleet of vehicles it didn’t need.
“A lot of the criticisms in the audit were really taken to heart,” Koski said. “And as new leadership at this division, we’re putting that at the forefront.”
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The division made itself visible when recreational sales began Jan. 1. Inspections led to 63 warning letters being sent to businesses for packaging and labeling oversights or not being properly logged into the state’s new inventory tracking system, the division said.
“The large majority of our licensees want to comply with the law,” said Ron Kammerzell, the division’s senior director of enforcement. “They’ve got a lot invested in this. But there’s a smaller percentage that either don’t understand the rules or don’t care. Those are the ones we need to be focused on.”
Mark Slaugh of iComply, a Colorado Springs company that trains marijuana companies in following regulations, said warning letters can cause problems for businesses. Some local jurisdictions take a merit-based approach for granting new licenses and renewing existing ones, and a warning could be a black mark, he said.
Kammerzell said the division also plans to send operatives to attempt to make underage purchases at recreational stores and medical marijuana purchases without mandatory patient cards.
Tracking system: The division’s most significant new enforcement tool, however, is its new inventory tracking system, which launched at the end of 2013 after a lengthy delay.
Business owners must purchase radio-frequency identification tags, attach them to plants and packaging, and log them into the system, called Marijuana Inventory Tracking Solutions.
The system will notify the state if a product does not make it from a cultivation location to a shop. Once there is enough information to form a baseline, Kammerzell said agents will be able to pinpoint the average yield on a plant, and businesses may be red-flagged if a grow location is reporting production below that.
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“The MITS system is going to give us a better opportunity to focus on high-risk areas,” he said.
The division can shift more resources to enforcement in part because it has finished processing a final batch of medical marijuana license applications that date to summer 2010.
Those businesses, which opened before the state began regulating the industry, have been allowed to operate while their applications were pending. Included in that group are dispensaries and grow warehouses affiliated with VIP Cannabis, the target of a federal raid in November.
The fate of those final license applications, however, has not been made public. The division will only say it has begun “administrative action” in those cases, which may include notices of proposed denial.
“I think it’s accurate to say they were in the last pile for a reason,” Kammerzell said.
“These were complex investigations and resource-intensive, and our resources were minimal for a substantial period of time,” Koski said.
The division did quickly process retail marijuana license applications last fall — an easier task because all had been vetted already in applying for medical licenses.
But more paperwork awaits.
The state’s first recreational marijuana licenses were only available to existing medical marijuana business. In July, the state begins accepting applications from all comers. So far the state says it has received notices of intent for 255 business licenses, which include retail stores, grows and marijuana-infused products makers.
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Mike Elliott, director of the Marijuana Industry group, which represents many of Colorado’s largest players in the business, said the division appears to be adequately funded now.
The process for employees to acquire state badges required to work in the industry, he said, is much improved and no longer a nightmare that required multiple trips to the MED office and entering a lottery.
“But we need money in reserve,” Elliott said. “There should be a surplus available as problems come up so they can be addressed.”
The division is required to have reserves equal to 16.5 percent of total expenditures, which would total about $1.8 million in fiscal year 2013-14, said division spokeswoman Julie Postlethwait.
Mandatory testing: The next few months will also bring mandatory testing of products, which is to be carried out by state-licensed independent labs.
Starting May 1, statute requires all marijuana edibles sold in retail stores be tested for potency. And later in the year, businesses are expected to test for contaminants in all their marijuana products.
Phillip Hague, head grower of Gaia Plant-Based Medicine, said he welcomes stronger oversight. He said his business meticulously follows the law, and that is not always the case elsewhere.
“It thins the herd, is the way I see it,” Hague said. “I would love to see (the state) come in and grab the bull by the horns.”
Eric Gorski: 303-954-1971, email@example.com or twitter.com/egorski